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tv   Market Makers  Bloomberg  September 25, 2014 10:00am-12:01pm EDT

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apple's epic fail. iphone that bends when you sit on it. an operating system that doesn't work very well. we will see what tim cook's next move ought to be. >> italy's prime minister vows ,o overhaul the labor market pitting him against the country's most powerful union. slam in the skies. the designer teams with nike and comes up with the ultimate travel experience for pro sports teams. >> that doesn't select a bull market, i don't know what does. you are watching "market makers." >> let's get to the news. >> the top business stories from around the world. an executive who has run phone countries on three continents may spend $9.6 billion for estate and telecom italia.
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according to those familiar with trujillo may take telecom china state. commercial join strikes in the continental united states. production copies would be allowed to use the small unmanned aircraft. that is according to people with knowledge of the plans. 40 other u.s. company's have asked for permission to fly drones. >> the u.s. and its arab allies are going after one source of the islamic state's finances. they bond oil refineries in eastern syria and estimated twomic states takes up to -- makes up to $2 million a day from oil. iphone 6ok called the the best role ever. but many customers have been complaining the iphone 6 plus gets bent out of shape if you keep it in your pocket and an upgrade to the operating system
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blocked users from making phone calls. those are to do big snafus, i would say. paul, what do you make of all of this? it is great if you don't want to get phone calls, otherwise, it is kind of lousy. this is disappointing. if you think about the way historically soft or copies rollout -- these are called patches, minor updates. it, apple does it, everyone does it. the key is to test the thing fairly widely before you roll it out because you're always going to run into these unusual cases. it is one thing if a couple of people have a problem, but in this case, it was widespread. people not only could not make calls, they lost access to the touch id, the fingerprint scanner that lets you in a mini apps. this is fairly catastrophic for apple. >> what you need to do if you are apple? --one, you need to rollout the first thing, they merely
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pulled back the 8.1 released and it was no longer available. two, rolled up quickly and a .2 release because you have evil who cannot use their iphone devices. this is fairly awful. three, change the way you actually test patches before you release them. it looks like this was maybe just tested on the apple campus where people are mostly using wi-fi and not using cell phones as calling devices. real-world, you want scenarios. this is a result of apple secrecy holocene. they don't want people to see what they're doing but the upshot is, they don't always test in the wider circumstances and you can have these terrible messes like yesterday. >> between the ios fail and the iphone six plus, which ago must bend in half, whose heads should roll of apple? >> well, i'd summit suggest to me, and apple guy, no pun
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the goo, he says designer in the posting jobs era phoned in the iphone 6 design because he was so busy working on the new watch project. the iphone 6 chosen off a lot of signs of having been assembled according to a bunch of specs as opposed to design and really thought about as clearly as may be might be the case. i think the guy you can point a finger to, probably is johnny on his. his head is never going to roll. you sort of the tsonga ali of design at apple. -- svengali of design at apple. when you sit down, high likelihood of bending for many people. >> can we talk about that for a moment? you could have had me on the quality control team in a would have been able to say, man, there's a problem. how could something so basic that seems like anybody could catch get missed? >> this goes back to apples testing policies.
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apple is so sigrid of, their products are often tested in a very narrow circle of people before they actually see the light of day. the original iphones work change to boardroom tables. you could not even move it away from the boardroom table, let alone put it in your pocket to see how it would work. this is a problem, a long-standing problem dating back to 2007. >> so you're saying there's a chance no one even tested it, no one ever put it in the pocket. itwell, maybe tim cook, but looks to me like he wears pretty tight hand -- pants. >> that is news breaking right there. >> tim cook -- >> tight pants. >> how is this possible? think about ikea. you've been to the showrooms where they have the chores being pulled in and out by robot, testing it for these kinds of things -- durability,
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susceptibility to breakage, civil things that should occur to anyone. how is it possible? >> apple doesn't need to prove to you that it is high quality. ikea does. >> that is right. apple has this halo that says it all just works. it is the secrecy policy. -- near avery list list of people that are allowed to see products and test them in the real world. uganda up with this, i don't know, genetically constrained group of people who are using them so they all use them for the same things on the same campus at apple in cupertino. as a result, you don't get a representative stats of what people use these things for the real world. no one is taking a toe wedding and sitting down for two hours listening to speeches and taking it out of the pocket and say, my goodness, my phone is bent. this speaks to how apple has to change. apple is going to have to become more open on how it tests
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product, whether it is software or hardware. that is just contrary to their dna. >> there you go. but aren't you amazed this happened? couldn't believe it. i couldn't believe it yesterday when i saw this. it was a complete yes go. microsoft gets beaten up regularly for releasing software that doesn't work, but they have not seen anything that is complete we shut down the computer's. >> thank you so much. >> young, charismatic, and determined to undo decades of gridlock and corruption in italian politics. i'm talking about italian prime minister matteo renzi. he is here in new york city for u.n. week to campaign for reform and growth in his own country of italy and threat europe.
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i spoke to him yesterday and we talked about this reform or bust mission. invest in theo only strategy possible, and vest in a radical revolution for my country. i obtain 41% last elections. consensus tol the change my country. man to spend a lot of force about the future. i began with a radical revolution of global markets and constitution of system, a radical revolution of public administration will change in investment in the future. i absolutely convinced, i use this 41% to change my country. and if i'm not able to change my country, i'm not able to continue with the political
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life. >> radical revolution, no small iter in anywhere, let alone, italy. you can see much more of that interview with prime minister mathilde -- the children's he enzi at 10:30 -- matteo r 10:30. the iranian rouhani is speaking. >> to the east and west of my country, extremists threaten our violence, resort to and shed blood. they, of course, do not speak a single language. they are not of a single skin color and not of a single nationality. they have come to the middle east from around the world. they do, however, have a single
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ideology -- violence and extremism. --y also have a single goal the destruction of civilization, giving rise to islam phobia and creating a fertile ground for further intervention of foreign forces in our region. say thatregret to terrorism has become globalized from new york to muzzle --mosul are damascus to baghdad, from the eastern to the westernmost parts of the world, from al qaeda to [indiscernible] extremist of the world have found each other and put out the .all extremists of the world unite. we united against the extremists? issuessm is not original
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that only the nations of our region have to grapple with. extremism is a global issue. certain states have helped in creating it and are now failing to withstand it. currently, our people are paying the price. today's anti-westerners in is the offspring of hazardous colonialism. it is a timeless wisdom is a reaction to yesterday's racism. certain intelligence agencies have put links the hands of madmen who now southern no one now staring the one. all of those who have played a role in founding mr. must acknowledge her errors, which have extremism.
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they need to apologize not only to the past generations, but also to the next generation. to fight the underlying causes of terrorism, must it in a fight its roots and dry its source fountains. discrimination, human nation, and in justice -- humiliation and injustice. it grows in the culture of violence to uproot extremism, we must spread justice and development and disallow the distortion of divine teachings to justify brutality and cruelty. the pain is made greater when these terrorists spill blood -- >> ernie president rouhani addressing the human general assembly here in new york city. you can keep watching his address on our live video channel bloomberg.com/video. peter cook is in d.c.
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i suppose no surprise he would cover some of the same ground the president omar ended yesterday, the subject of extremism and the fact opposes a challenge not just to the united states, but the entire world, including some of the states accused of sponsoring it. >> that's right. we've seen over the past couple of days, president obama and the iranian leader have both talked by thehe challenge posed islamic state. iran has an interest in taking on the islamic state that is a concern of them, a concern going forward. there is no sense at this point that the united date and iran are coordinating efforts against islamic state. i don't think we will get any suggestion from president rouhani that is about to happen. we are not heard any reference to the negotiations over the nuclear talks because these issues are related, in some respects, and there certainly a feeling that perhaps the iranians might help more with
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the islamic state because it helped him in terms of leverage with the nuclear talks in washington. there were some parts of lawmakers in washington that those talks could end up with a deal, not in the u.s. interest. right now the feeling is they are roadblocks to a deal by the the end of november, which is the deadline. >> peter, and a backdrop to this, the second day of corrugated airstrikes against targets in syria. that is our chief washington correspondent, peter cook. return, stocks fine high. investors expect lay fighting in the middle east and ukraine will be very good for business. --dear tutor's farewell derek jeter's farewell. scalpers are looking nervously at the weather forecast.
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feels like a pretty good time for defense companies here in america.
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stocks are trading at record highs. give some credit to escalating military conflicts around the world. investors are counting on rising sales of missiles, drones, and plenty of other weapons. government senior defense analyst is with us this morning. kevin, is the market anticipating more demand than there really is for missile systems and the like because we haven't started another iraqi war, these are airstrikes, not the same as what we saw in the early 2000's. >> i think the market is having a broader perception in just isis. when you take a look at u.s. pivots pacific and recent threats and ukraine, it is not the specific action where you are flying in f 22 and dropping a bomb or shooting a tomahawk missile. it is all the other efforts going on in the world, the wider posture or the u.s. has committed not just to countering global terrorism and isis, because that is only 10 but in
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dollars, $20 billion, $30 billion in any given year, but much broader threats or defense contractors play a key role in supporting u.s. military. >> what does that mean for the sequester? is it more likely to be revealed? >-- appealed? >> if they want add-ons, they can get add-ons in war funding. the air force tried to buy f-3'' pentagon wanted apache helicopters, and it wanted to use excess were funny from last year to do it. congress said no. congress may realize there are key capabilities they want to support. if they want to do that, it is not going to be with the sequester. give sequester is pretty much -- the sequester is pretty much straightforward. essentially put a floor on defense budgets going forward. while it says in the law congress will spend no more than about $500 billion a year in any given year on defense spending,
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it is highly unlikely for congress to spend less than that. >> are we talking about spending being primarily by the u.s. government or is some of the demand coming from overseas? >> i think we will have , aseased overseas demands they've seen a much greater threat than they had anticipated. under their nato commitment, they're supposed to spend at least 2% of the gdp. they are spending considerably less than that. my colleague calculated if all countries did meet their 2% threshold, there would be at least $100 billion more defense spending next year. that is not going to happen over the immediate term. in the long-term, an external threat needs considerable amount of additional funding that is not when to be spent properly on people, but intelligence equipment, missile defense, on other systems the defense contractors provide. >> exactly what specific defense contractors? boeing is a feeling it, but lockheed and northrop are. break it down.
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>> lockheed martin, northrop grumman, a company like boeing may not feel it. commercial aerospace is doing well. i think you have to take a look at the long run about the key capabilities. it is not about how big their business is now, but from the defense departments perspective, what technology can you bring me in the future? sequestration has refocused the defense department into bringing where they can acquire the most advanced systems in the future so the u.s. can keep its technological edge. boeing may not be seeing it today, but does have key advanced capabilities. dimon, desk grumman, general dynamics, lockheed martin. >> you think the u.s. still has a technological edge? >> it doesn't many ways. in particular, its use of equipment to drive intelligence. it has a key edge in increment for special operations forces.
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it's abilities are unparalleled. -- space capabilities are unparalleled. talking about a global dominance, yes, that will be eroded over time as other countries gain capabilities, but the u.s. has to look for specific margins where it wants to maintain its dominance. you look at penetrating bombers. u.s. will develop a new bomber. i think the u.s. has a key advantage here, which other countries are struggling to catch up with. >> kevin, thank you. talking about the growing demand for u.s. defense contractors. >> when we return, overhauling italy's economy. italy'sd down with prime minister when we return. ♪
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>> it is time to take you on the markets. u.s. stocks are falling. the dow is near session lows, down nearly 1%. the dollar is at a four-year high. investors are betting improving economic data may mean the fed will raise rates sooner than expected. the dollar is at a four-year high. look at this market across the board. red. that is not what investors like to see. >> no, the strengthening dollar is fascinating. it has huge implications for the economy. how competitive can exports be if the dollar continues to strengthen? take a break.d to >> three days after announcing apple sold a record 10 million new iphones over the opening weekend, the company is pulling an update for the operating
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system after new software caused some people to lose cellular service. >> we will be back with more. ♪
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>> you're watching park market -- "market makers" on bloomberg. i'm erik schatzker. >> and i'm stephanie rule. >> the eu won't give any wiggle room on the 3% definite target and he faces growing opposition to what he calls reform. here's the prime minister looks at this immense challenge. >> we must absolutely change
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our country. because italy is an incredible , and it is rich and incredible opportunities. but we need a future. and we don't think about the past. reform is reason -- makes italy more efficient and smart. italy beauty and open. reform is the thing for us. and without reform in italy, it's impossible for us to emerge a different europe. italy is eform in possible. necessity. change the way for europe. europe now is blocked. we need a vision for the next urope.
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>> for you to achieve what you want in italy, two things have to happen. you have to reform the country, the labor market, the constitution. the brock cri, civil brock cri and more. -- bureaucracy and more and you need flexibility from your euro leaders. can you have that flexibility so you don't have to meet such rigid targets for debt and deficit without first achieving reform in italy? >> when she decide make her -- in 2003, germany's leader cide to have a flexibility respecting the agreement of the past. 2003, germany decided don't respect the 3% average of arameters of european -- now
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respect to 3%. so our flexibility is not in the 3% in order. our flexibility is in the mind. we need a different leadership with a vision open about the future of euro zone. in this moment the euro zone lost positions in the ranking. why? because we are stopped and blocked. we need a different idea of future for europe. but i believe only if i present myself an idea of revolution in italy. without reform in italy, it's impossible for me to be believable in europe. >> so you need moral authority first. you need to show that you can change italy before you can have the moral authority to change in europe? >> because it's important to my
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country not for me. and we must change italy to give the message it's possible to change europe. >> the youth might embrace your message of change. but the unions so far have not. how do you over? which that opposition? or are you willing to compromise? >> respect i respect all ideas and also the ideas of unions. the compromise is not a bad word. we can achieve a compromise, if necessary. in this case compromise is not the way. this case we must absolutely invest in a new labor market in italy. we have legislation very strong to defend workers in italy. but in the last six years, the number of unemployers are
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doubled. 12.6% of unemployment. 43% of youth unemployment. dramatic numbers. still this is not the time of compromise. this is the time of courage. >> mr. prime minister, would it help you to call an election to n a new popular mandate to accomplish your goals? >> we must show italy the respect, the timeline of the next constitution will be in 2018 and i am to arrive that the goal. because in italy there usually is the traditional approach. ok. we have a problem. we go to election. no. election are every five years
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and we must change elock to recall to give a message very clear about who is the winner and who is the loser. in america it is impossible to understand the importance of this, because it's normal. there are a winner and a loser in the election. in italian political system not everybody after election will look to the camera and say, ok. i am the winner. everybody wins. no we must change and give simplicity to the italian system. >> a question about the countryman mario draggy. he saved the euro. how much can he do to stimulate the country? >> the economy? >> in this moment european central bank is not a federal reserve. the federal reserve a lot of
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powers more than european central bank. but the decision of president draghi to increase the stimulus to the economy are good decisions. or the future, i think the thinking in this moment is realize structural reform in every country, and this is the commitment. now the situation is in the hands of the government. not in the european central bank. draghi make very important things. now there is possibilities of government. >> is that to say he shouldn't go forward with quantitative easing? or it wouldn't be effective? i think the decisions about
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similar quantitative easing -- my personal opinion are good those decisions. so we will -- the results after the first month and after the period in which banks decide about relation with the small and medium entrepreneurs. for the moment it's impossible to give a judgment until the fourth results. >> so sums up to mario draghi, no way there's going to be an election before 2018 and if you think there's going to be a compromise on italy's labor reforms? don't think about it. >> do you think he can get it done? he has lofty goals. >> no easy task. and people are beginning to complain that for all of the momentum with which rensi swept into the prime minister's office, he has not been able to accomplish a lot. >> saying it's not an easy task
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-- but is it possible? >> yes. >> melissa mire turned yahoo around. sit possible? >> yes. >> you're saying there's a chance. >> there is another world leader making headlines. iran's president hassan are hanny moments ago speaking saying today's anti-westernism is like colonialism. but before that he talked with us. >> this group is a terrorist group and an extremely dangerous group. extremely savage and barbaric in their conduct and in their actions and inappropriately and wrongly use the name of islam and the faith of muslims in all of their actions unequivalent -- against their teachings.
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but that doesn't mean if a group in a country conducts terrorist activities, another country without coordination and without permission of the central government of the victimized country can enter their air space and carry out an air bombardment. >> you can see all of that interview tonight on charlie rose at 8:00 and 10:00 eastern time here on bloomberg television. >> coming up bob speaks our own betty liu about his battles. turning around aig and his battle with cancer.
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>> tonight here on bloomberg television a special edition of titans at the table with the former c.e.o. of a.i.g., bob benmosche. we met up with the larger than
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life wall street figure who turned around what was once an almost broke a.i.g. here's part of that show which airs tonight. >> compared to other wall street titans, lloyd blank finder, bob benmosche is less recognizable but you couldn't tell on the streets where people came up to the hulking 6'4" to take photos. >> i'm really nobody. >> while walking down these streets benmosche recalled the very first moment he took on the job of turning around a.i.g. >> when you first turned around and got your hands on the books at a.i.g., what did you see? >> well, i didn't actually look in the books, and i had a pretty good idea of what was represented by what's in the books. because i spent a lot of time with jim milstein. >> ok. >> and jim was the
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restructuring executive who was handling this for the u.s. treasury. and i spent a lot of time with sara doll grin who was also handling it for the new york feds. i questioned them about the financials. and my assumption was, they did their due diligence. >> when they reached out to you about what they knew were the financials, were they better or worse than you thought? >> in line? >> i think the world thought they were worse than they were. >> and you didn't? >> i didn't think it was that bad but it's a question of if the outside world thinks it's that bad, i got to get you to stop talking about how bad it is. >> today a.i.g. is a slimmed down version of itself and profitable. but does it still pose a threat to the financial system? >> i don't think the a.i.g. situation will happen again?
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>> no. >> i don't think you will see a bank failure that we have seen. i don't think you will see a securities industry we've seen like bear or lehman. >> so you give a thumbs up to the regulators? >> yes. for getting the job done but thumbs down for being afraid to tell the public. i've criticized many people in washington at all levels. why don't you talk about how much progress you have made? since 2008? their answer is, well, we're not sure something can't go wrong. i said, shame on you, because you should be sure. i'm sure. >> shame on you. >> titans at the table is coming up at 9:00 p.m. eastern. >> shame on you if you don't watch it. >> with betty liu. >> what was your big take away betty? >> there were a couple. you just heard him say, i think the regulatory system has
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worked and in fact he doesn't believe there's ever going to be another a.i.g. again. so he is certain about that and says he is more confident than the regulators are that they have taken care of the problems that erupted. the other take away was during the course of our discussion he disclosed more of his health issues. we talked about this and he said his treatment is no longer working for his cancer and had been given the prognosis of 9-12 more months that he would live but i wouldn't under estimate bob benmosche. because he was give than diagnosis years ago and -- >> hand? >> he was also fun. it's unroll the tape. there we are. trying his benmosche family wine. i don't know a lot about wine but it's a specific variety. there it is.
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>> probably indigenous to croatia. >> question. and it was great. very good wine. i'm no wine expert but it was good. so we toured his vineyard, went through his wine cellar. >> he is very passionate about that. >> he said this is his second career. he doesn't need to work anymore. so -- >> exactly. >> in principal, the wine should be good because croatia is just across from tuscany and -- >> exactly. >> yes. >> betty, thank you. be sure to catch tonight at 9:00 p.m. her exclusive interview with bob benmosche on "titans at the table." >> coming up, it seems our sports team will go to any height to gain an edge? we will be checking out a new plane designed just for athletes. ♪
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>> i'm stephanie rule with my partner erik schatzker. we are going to take you street d.c. where we have some breaking news. peter cook will give us more. peter? is >> we've got word according to national public radio. the attorney general erik holder is planning to submit his resignation and will step down. we have now confirmed erik holder attorney general will step down. he has been one of the longest-serving members of the obama cabinet. he has been there since the start of the administration and played a prominent role in a whole host of areas and we have seen him most recently travel to mizuho but in a whole host of issues, the criticism he faced for not seeing enough prosecutions and national security issues and a range of other issues. his tenure, he was the first black attorney general in history and he spent a lot of his time doing battle with
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republicans in congress, and he has been a loyal confident to the president and advisor and someone seen as likely, this is not a huge surprise he is the stepping down, stephanie and erik but it will be a void for the president in his final two years. the question was how soon will he step down? likely until a successor is named. >> thank you for the latest breaking news out of our nation's capitol. >> moving on. forget business class nike and the design firm teague is partnering to create a high-tech plane for athletes to help athletes avoid travel fatigue. it is complete with hydration stations and sleep zones. it is designed to give athletes a home-court advantage at 40,000 feet. a creative director at teague joins us via skype from seattle. this is such a cool idea but
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walk us through it. exactly how does it work? and is it possible? >> yes. we do believe it's possible. teague is in the aviation business, and we have been designing for air travel for over 65 years. what we found in the past is that air travel truly does have an impact on all of us. so looking at this special group of people, athletes that are way beyond average, we hope to look at insights we could apply to the broader public. athletes are taller and bigger and faster than most of us and have very unique challenges as they are trying to come or go to and fro games. a lot of it has to do with their performance and having to be at their best. so we have taken some steps in offensiving how they could be helped. >> it's a gorgeous idea. a dream, really. but how much does it cost? >> so from a cost standpoint. you can get used aircraft
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something like a bowing 767 for $14 million-$15 million. the cost of the interior will depend on the cust myization. they don't require too much cust myization. but just how you place the seats in the airplane, a smart layout, make sure the athletes get peace and quiet so they can sleep, which is really important to them and so they can stretch out, that can go a long ways in making them feel better. >> why nike? because it would seem to me it potentially limits the appeal to teams that are in bed with nike as opposed to teams that have gotten into bed with adidas or underarm our. >> so our expectation with teague is tech knowledge and the reason we reached out to
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nike is because we believe they are leaders in sports technology. and seattle and portland the adjacent made for natural partners. we reached out and they were great at providing us with feedback along the way making sure the concepts we came up with were sound and at the end of the day there's no one that understands athletes better than nike. they are masters in material and material science and i think they could bring a lot to the table if they wanted to bring this forward into production. >> and who would foot the bill for this? >> so i think there's two ways to think about this. on the one hand it might be a team owner. somebody like mark cuban or paul allen, they have had airplanes in the past and might be ones that might be interested. >> phillip, we have just run out of time. i'm so sorry. film designer, a creative
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designer at teague. "market makers" will be right back.
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life from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. that'sd stockman says the problem america faces. he will be with us for the whole hour. >> is the bubble about to burst? no way says this professor. according to him, equities are the best deal around. >> and an economist on how to get the economy going again. welcome back to "market makers." i'm stephanie ruhle.
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>> i'm erik schatzker. a young congressman from michigan left capitol hill -- left to become ronald reagan's first budget director. he helped slash income taxes. >> look at that photo. >> he remained in office for reagan possible first-term -- whole first-term. he left politics for business but has returned to the public stage as a commentator on fiscal policy. last year, he published "the great deformation," which looks the budget and government shutdowns. you are fired up, aren't you? >> i'm ready to go. where do we start? there's a lot of material. >> what are you most fired up about? >> i'm tired out about the
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--ancial bubble that with that has been created. we are in a monumental financial fantasy that has been building for most of this century. i think it is not much more time in front of us before this whole thing comes unwound. you cannot increase the balance sheet of these central banks at this rate and expect that you are going to have financial markets that are healthy and stable. these financial markets have been ruined and crippled that are driven entirely by the liquidity from central bank injections. >> you know there is nothing that we like more than a little point-counterpoint. the ultimate report card on the economy and on the financial markets -- economy and fed policy is the financial markets. are a former partner at blackstone. you managed your own hedge fund. beay, stocks happen to
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falling hard. the dow is down some 200 points, the fourth drop in five days. to you, that may not be much of a surprise, given what you've told us. you've been saying valuations are out of control. however, there are several people out there who disagree. the one we've asked to join us for this debate is jeremy siegel , professor at the wharton school at the university of pennsylvania, with us from philadelphia. you just heard david say that we are in the ultimate financial fantasy. it has been building for a century. >> this century. >> what do you think? >> i'm sorry, i disagree strongly with david. i've been saying for the last several years that the stock market is not in a bubble, not just because it has gone up so much, we had the worst bear
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markets in 75 years. it is way undervalued. how can you call the stock market bubble when it is selling at 16.5 times this year's earnings, less than 15 times projected 15 -- 2015 earnings? these are below historical standards in a low interest rate environment. how can you call that a bubble? >> the interest rates are low because the central banks have put them there. they are going to normalize it when the interest rates go up, it's going to change the valuation of everything. the massive buybacks that have occurred, because corporations can borrow -- that has taken the market up. we are not trading at 16 times. that is wall street's -- we are actually trading at 20 times the gap reported results for the quarter -- the last 12
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months ending in june. that's at the top of the range that we've seen time after time historically. when you get in that zone, usually there is a large correction. this time it is even more precarious because we have profit margins at nearly 12% of gdp. the historic averages 8%. we have earnings of $100 per share properly accounted for on 500, that have five dollars or $10 worth of cheap interest costs in them that are going to go away. have earnings in the s&p that are translated out of dollars from non-dollar currencies into dollars, that are going to go the other way as the dollar strengthens against all of the other week currencies in the world that are being trashed by their own central banks. if you put all this together,
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plus we are now in month 63 of this expansion, it is due for some kind of correction. you shouldn't be capitalizing earnings at 20 times what is being produced. you shouldn't be capitalizing small and midsized companies like the russell 2000 at 80 times what they've actually reported. that's where we are today. we have speculation everywhere. a giant accident just waiting for a catalyst to bring it all down, just like happened in 2007-2008, just like happened in 2000, when the perennial goals set were still warm,alued, the water is stick your toe in, you will enjoy it. siegel, he is
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trying to rain on your parade. >> certainly. first of all, in 2000, we had a of 30.io in excess these were technology stocks now at 15 times earning. we are nowhere near 2000. secondly, yes, interest rates are going up, but not to levels that we had before. determinantsimary of interest rates is economic growth, and the cbo economic growth says it -- the cbo says economic growth is at over 2%. meager inill comparison to that. i'm going to disagree with you on the earnings. the true earnings are somewhere between operating and reported. i written on this level.
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theoretically, you should be taking either 12 months or the -- 12 months you could say 16, 16 .5, 17. is 19.rage we are still not there. to say that we are anywhere like 2000 is really fantasy. we would be right now at dow 35,000. i think there was a book about that. if we were at p/e ratio is that we were back then. the margin.nt on the major reason that margins are higher is because foreign 40% to 45%ich is now of s&p 500, are higher because foreign tax rates are lower. the foreignhink profits of s&p 500 are going down, i don't think we are going to get those margins going down.
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by the way, the leverage of firms today is at the lowest level in over 30 years. that also raises margins. i could go on on the margin story, too, but everything i study -- we are very close to fair market value, maybe a little lower. i'm calling for dow 18,000 by the end of this year and i still think stocks are going to beat every other major asset class for the next three year to five-year period. >> first, i'm glad we are not at 2000 levels, because there was a catastrophe that happened very shortly thereafter, a massive meltdown that destroyed eight $8lars trillion -- destroyed trillion of financial wealth. the margins are high. i'm talking about u.s. account income, not international s&p reported by the commerce department in the
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national income accounts. third, we have a very weak economy. you cannot capitalize the .arnings of a failing economy that's what we have today, a failing economy. we are not creating jobs. there are no more jobs for main stream -- mainstream full-time ins today than there were 2000. we've got 14 years with no progress. we have headwinds from all over the world. japan is an old-age colony that is about ready to hit the wall. china is a house of cards that is going to come unraveled. europe is sinking into a stupor of socialist fiscal and economic crisis. you put all those things together and i say history is irrelevant from the periods before the year 2000. we need to look at the real world going forward. as we look at all those headwinds and how extended this bubble is because of this
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massive money printing by the central bank here and elsewhere, i say you cannot say that we are in good shape compared to history. history is not the relevant comparison. the facts on the grounds of the danger. them a do you and david agree on anything? -- >> do you and david agree on anything? >> i think we would agree probably that we need tax reform and simplification. i really believe that we have regulatory overload, and that is impacting our economy in a negative way. i think you are a registered republican. so am i. i think we have a little something in common there, but this terribly pessimistic view of the future, yeah, we have challenges out there, but the major reason for the slow growth, obamacare --
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cbo has written about it. .e have slow labor growth but we had a remarkable reduction in the unemployment , movingmost down to 6% much faster than the federal reserve is. we are the fastest-growing of all the developed economies in the world. been blowingve china out of the park for how many decades? until it collapses? i'm not saying it isn't overblown, but the emerging markets are still growing 5%, 6% per year. that averages what the slow, could be not a bad historical rate of growth in the economy. from a global perspective, yeah, we have challenges, but i certainly don't think that pessimism is at all warranted. >> i think we agree that we have a $17 trillion national debt
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that is a huge burden on the economy, huge deficits that are going to go back to the trillion-dollar range once we have an extra session, and, as far as i can tell, they haven't outlawed recessions, nor has the fed proved it can stop them ultimately. we have a growth rate of investment that has been less of plant andrms equipment and real terms for 14 years. if you not investing in productive assets, if you are not paying your way in terms of finances, if you have $60 trillion of debt on the economy, public and private, which is off the charts, 3.5 times the national income, you have headwinds that are not easily dismissed. you have a circumstance that we've have never faced before. that's why i think some pessimism here is, unfortunately, unavoidable. a i have not heard a bull and
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bear case as well articulated as both of you -- >> and respectfully, i want to point out. >> they found a little common ground. >> just because you are both registered republicans means nothing. >> we will have you back soon, hopefully with david. siegel, professor at the wharton school at the university of pennsylvania. david stockman is staying with us for the hour. >> coming up, three decades ago, he changed the way we talk about taxes. cutsll be here to talk tax and a legacy -- the legacy of ronald reagan. ♪
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>> president obama is still york for still in new the un's general assembly. he is talking about what the united states and the world need to do to stop the evil outbreak
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in west africa. he is tell people that it is a threat to africa -- not just to africa but the entire world. let's listen to the president. >> comparing this outbreak to fighting a fire -- forest fire with spray bottles. but with our help, they can put out the blaze. last week, i visited the centers of disease control and prevention, which is mounting the largest international in its history. i said that the world could count on america to lead and that we will provide the capabilities that only we have and mobilize the world the way we have done in the past in crises of similar magnitude. and i announced that in addition to the civilian response, the united states would establish a military command in liberia to support civilian efforts across the region.
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today, that command is up and running. our commander is on the ground in monroe yet and are -- in monrovia and our teams are working as fast as they can to move in personnel, equipment, and supplies we are working with senegal to stand up on air bridge, to get health workers and medical supplies into west africa as soon as possible we are setting up a field hospital as soon as possible. we are setting up a field hospital. we are distributing supplies and information kits to families so they can better protect themselves and, together with our partners, we will quickly build new treatment centers across -- treatment units across liberia, ginny, and -- ll iberia, guinea, and sierra leone. more countries have stepped up their efforts, and so has the united nations.
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the secretary-general's announcement last week will bring all of the u.n.'s resources to bear in fighting the epidemic. we thank you for your leadership . this is all progress, and it is encouraging. clear.ant us to be we are not moving fast enough. we are not doing enough. now, everybody has the but peopleentions, are not putting in the kinds of resources that are necessary to put a stop to this epidemic. there is still a significant gap between where we are and where we need to be. that therom experience response to an outbreak of this magnitude has to be fast and it has to be sustained. it is a marathon, but you have to run it like a sprint, and
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that's only possible if everybody chips in, if every nation and every organization takes this seriously. .verybody here has to do more international organizations have to move faster to cut red tape and mobilize partners on the ground as only they can. more nations need to contribute assets and capabilities, whether it is air transport or medical evacuation or health care workers or treatment. >> president obama speaking at the united nations about the threat posed by ebola, says the world is not doing enough, not spending enough, and it is not just a problem for america, it is a problem for everyone. you can keep watching his remarks on our live events channel, bloomberg.com/tv "market makers. -- bloomberg.com/tv. "market makers" will be back in just a minute. ♪
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>> we are approaching 26 past the hour. it is time for bloomberg to go "on the markets." have resumed their declines from late last week with the s&p 500 falling for a third time in four days, now trading at the lowest 50-day moving average, a short-term trendline. for technical reasons, selling has picked up as well. .he dow industrial is losing all 10 industry groups in the s&p 500 are lower.
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across the new york stock exchange, 14 stocks are falling for everyone that is higher on the big board. that is the broadest retreat since early february. in terms of economic data, it came in line with economic forecasts for the most part against a backdrop of rising interest rates. outside of the world of activities -- of equities, the 10 year yield is now 2.52%. in the middle of last week, it was about 2.62%. earlyutures have pared losses, still at an eight-month low. nike is moving to the downside. 3.1%,also losing ground, helping to pace the slide in technology stocks. >> coming up, david stockman is still with us. we will be talking taxes with the father of the laffer curve. art laffer will be with us. ♪
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>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> welcome back. is the wayng taxes to spur growth. the economists who advise ronald reagan -- the relationship between tax cuts and tax revenue. the u.s. budget has been in surplus only during the final years of the vincent administration. with us now are two people who have dealt with taxes and budgets in the administration
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that shape it all, the reagan administration. -- only during the final years of the clinton administration. i'm not quite sure where to begin. because we've heard a lot from david already, i will had it -- handed over to you. >> thank you. i can remember those days fondly. i am very grateful for the way you referred to me. while i disagreed with the intent and content of the piece as a whole, you were very correct in your presentation of me -- representation of me. >> i'm not sure where we are going to start. i do agree that lower taxes are better than higher taxes. i'm a small government man. i'm a libertarian. i would like to slash taxes.
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on the other hand, i also believe history proves you have to pay your bills. over time, over 30 years, we haven't been paying our bills. that's how we got $18 trillion of national debt. will go up over $15 trillion more in the next decade. we have reached a point where there is no political will to cut spending and reform entitlements and tell the wealthy people on social security, you're off. you can pay your own way. we have a defense budget that is massively too big relative to the world we are in today with no real industrial state enemies. washington, both parties, unwilling to take on the spending side. we think we can borrow until there is no tomorrow and put the entire burden on future generations. i think that is going to backfire massively in economic terms and soon.
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therefore, our difference is, i believe you have to cut spending first. you have to earn the right to get -- give the people lower taxes. he thinks if you cut spending first, the economy will grow enough to pay for them. it that is the fundamental debate of the last 30 years. i don't think you can resolve it. you have to look at history. >> has anything changed in 30 years? >> it has. david is completely correct when debate 30ed the years ago. we don't have a double-digit inflation or bracket creep anymore. all of those were why i wanted to go on monetary policy and tax policy. i have always been with david 100% on government spending. i just thought in 1980 the spending issue with something we have to get to later, not right away. today, i would argue that spending, especially
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entitlements, are on the cross hairs of the fundamental first issue to be addressed right now. tax reform is always good. the corporate tax rate is way too high. we can collect more money by broadening the corporate base. spending is the issue and we do have a deficit going over the next 15-20 years. david is completely correct on that. >> are more tax cuts the best way to correct the deficit problem? >> they are part of the way of correcting it. the corporate tax rate reduction would in fact raise money and raise a lot of it. especially if we brought -- broaden the base symmetrically. it would stop the inversions and s ande a lot of new profit profit taxes. there are other ways -- i look at the proposals coming out on tax reform. if we went back to the 1986 tax act, it would be very healthy for economic growth. you can't balance the budget.
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you can't balance it on the backs of the employed and the poor. our employment is at the lowest levels in years. we have to get economic growth back into the system. taxes are one way of doing that. >> what are the other ways of doing it? >> entitlement reform. when you capable -- when you pay people not to work, don't be surprised when they decide not to work. i think they were right and they were totally ignored. we have 110 million people getng in households that means tested benefits. we have 150 million people living in households that get under the benefits -- get other benefits. how can half of the population be dependent on the milk calendar washington -- milk cow in washington?
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i would agree with art on taxes. i would get rid of the corporate tax entirely. get rid of it. don't waste your time trying to reform it. it will just put the tax lobbyists to work for a year. you need to reduce the tax wedge on wages. we are not creating jobs, we tax ,ages at 15% on social security we have managed to get our labor rates the highest in the world. we are not competitive. theeed to drastically slash payroll tax and replace it with a consumption tax. tax the thing we're doing too much of, consuming, and reduce the tax on the thing we are doing way too little, creating.
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consumption tax is not regressive. you can find ways to work around that. consumption taxes has everybody in society has to have -- fix then't want to deficit by putting the burden on the employed. >> i think david's proposal made me the leader of the david stockman for president club. the market.ight on david has always been one of the brightest people i've ever met. my only problem was that article. you're right on the spending and you're right on the taxes. you are right on money and inflation as well. i'm on the david stockman for president club. >> that club doesn't exist and it's a good thing it doesn't.
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is that you saying washington today is not focusing on any of the issues that matter. they talk about tax reform and it's just hot air and political rhetoric. no one is saying get rid of this corporate tax. they talk about the need to incentivize job creation and no one is talking about this monster called the payroll tax. >> do you believe if we got rid altogethere taxes that demand would magically materialize? demand --s no >> we sell cars in china. >> i'm only saying it collects less than $200 billion a year. less than 2% of gdp. back in the day when the west was the dominant economy, it collected 9% of gdp. the tax can't be efficiently corrected.
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what we have to taxes what we can identify that happens domestically and that his consumption. >> what about wealth? >> what about wealth? ok. let'sestion on wealth is, get the fed under control. let's stop printing money and stop fueling artificial troubles -- artificial bubbles and wall street. that's how the 1% are gaining more and more wealth. it's not out of earning and out of creativity and brilliance and good looks. it's been conferred on them by the monetary policy -- monetary power bureau. >> it's also been conferred upon them by the tax breaks they get. we do not collect taxes on increases in capital gains. we don't tax people who get more than $2 billion -- give more than $2 billion to the children's foundations.
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worn buffet pays about 61 hundredths of 1% of his income -- warren buffett pays about 61 hundredths of 1% of his income. like jerrylat tax brown proposed in 1992 and just get all of this tax code out. >> you would eliminate all loopholes? >> absolutely. byrd said it before and it's been done. the greatest tax act ever written was the tax act of 1986. the reagan reform. it broadened the base and put the top rated 28% and taxed everything the same. capital gains, dividends. it was revenue neutral. the principal was everything is taxed the same. now, after 20 years later, we
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have capital gains still being we have laborand income being taxed at 40% for anyone who is reasonably -- >> let me just say, the 86 tax was passed in the senate by a vote of 97-3. almost every single democrat voted for that, including alan cranston and al gore. all of those guys voted for it because they knew it was right. we need to come back to doing what's right rather than what's politically expedient. david is exactly correct on all of these points. earlier thatoint this isn't going to happen. >> yes it is. this is the difference between david and me.
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david has always been worried about the crisis coming. i've always been worried about -- you look at washington and ca coming nirvana? -- you didn't know it was reagan at the time when it came on. we will see a political process that will respond to obama and you will get the greatest period of prosperity you've ever seen. >> where is it coming from? >> in the house, the senate, the presidency. state governments. you see the republican nominees are great and there are tons of democrats that are also really good. these people know there is a problem with obama. they are caught in a political trap just the way they were in 1970.
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-- 1978. period.ust a wonderful >> that's a great rendition of a nostalgic history. the difference is today, i look at washington and see a nightmare. in 1980, we had full grant the fed who was willing to do the tough stuff to fundamentally stop this runaway inflation rate. the result of a fed that was willing to do the right thing. >> thank you so much. the former chief economic advisor for ronald reagan. david stockman staying with us. he's an optimist for sure. david, not quite so much. ♪
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>> david stockman has been our guest host for the hour. we've had a ton of fun talking to art and jeremy siegel. budgets the former
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director for president reagan. an outspoken man who has a ton of different ideas on everything. how about a speed around? speedare going to play a round of word association. i will give you a word and you give us the first thing that popped into her mind obam -- your mind. obama. >> wrong on every account imaginable. the failure of the economy to the people he is appointed to the fed. you can't say enough bad things about his administration. >> janet yellen. >> the worst disaster yet at the fed. greenspan was bad enough. bernanke made it worst. someone who has not learned anything since her thesis. she is taking us right to the wall.
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as well intended as she is, she has no clue. >> paul krugman. >> the only thing worse than the there is department -- a man who has an uncanny ability to get anything wrong that he addresses. unfortunately, he has a form to do it each and every day. >> tea party. >> the once great hope for the united states, but too many of its members got off the deep end with social issues and immigration and neocon warmongering. they should be addressing getting our free-market economy back. getting the central bank under control and getting some fiscal discipline. if they stuck with that, we would be ok. him the taliban of taxation. creating such a division
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in the republican party between fiscal responsibility and the republican party is paralyzed and the democrats want to do nothing. so, we have a fiscal free lunch system in washington that's leading to a catastrophe for our national debt. >> rand paul. in the washington environment today who is speaking truth to power. who looks at our foreign policy and says all of this intervention and occupation and droning and bombing -- we are worse off today than we were then. rand paul knows that that is the core fundamental problem that has to be gotten under control. thispaul is addressing monstrous growth we've had in the federal government and the lack of fiscal discipline. >> hillary clinton.
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>> please. we don't need another bush or another clinton. she is part of the problem, not part of the solution. during her tenure at the state department, it was the same old interventionist policy that has gotten us in the disaster that is occurring in libya today and is happening in syria. these, we don't need any more clintons third. >> iran. -- ayn rand. >> i read her in college. i could have met her in college fromse i was a student 1964-1968. i've been at this for a while. >> what an absolute pleasure. >> fantastic.
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president ofkman, reagan's budget. >> ronald reagan's budget director. we are taking a quick break here on "market makers." ♪
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>> aching news. -- breaking news. eric holder is expected to announce his resignation as
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early as this afternoon. let's take you to our chief washington correspondent, peter cook playing the parlor game of who exceeds holder -- succeeds holder. formalxpect a announcement this afternoon when president obama returns from the united nations general assembly. some of the names being mentioned already included james cole. and the governor of massachusetts. his term there is about to expire. there is a long list of people who could qualify for this job. that includes some sitting u.s. senators. arc prior -- mark pryor. there is a parlor game of who will replace eric holder and some questions over whether or -- the first black attorney
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general played an active role in civil rights issues. that's one question going forward that a lot of people would like this job. you have to get confirmed by a republican senate in the future. >> a job people would like to have. new york in wonder if the representative from the state might be up. >> already, some of the names have been sent, he is on that list. you will see a long list of people. you have to think about people who can get confirmed as well. >> thank you so much. that is going to wrap us up today on "market makers." it is 56 past the hour. time for bloomberg to take you on the markets. >> we're taking a look at u.s. equities right now. the s&p 500 has resumed its decline that began late last week.
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the selloff has accelerated for the morning. -- through the morning. given the declines we are seeing and the technical levels we saw, what easy and options that indicate that this selloff will continue? >> we are seeing a rise in the vic that implies volatility. -- seemshe 15 level the cap of the upside. 12 for the low. their remaining a little subdued here. >> perry quickly, we see a lot of options activity before -- nikes one of the big decliners. >> we are seeing week volatility. 79, it will jump
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even higher. it will be interesting to see how it will react. definitely some big elevated nervousness and volume. thehat is coming after market closes and we will bring you those details when it happens. been keeping ae close eye on is amazon. i like the fact that amazon got hit hard on the post alibaba deal. in impliedjump volatility and stock down at 323. i'm looking at the position next week to be a buyer on the 31750 split. collecting $.60 credit here. i have about a 31% return. the skiing about 190 for every $.60 i can bring in.
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i can like it from and options volatility standpoint as well. >> the losses are potentially much larger. certainly something -- a risk for investors to watch out for. thank you for joining us this morning. we are on the markets once again in 30 minutes. "money clip" is up next. ♪
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>> welcome to "money clip," where we try together the best in businesserviews, a news. oil assets held by the islamic state in syria. iran's president says is going to take more than that. riding the alibaba wave. for ipos,s right including one that has been years in the making. mr. reformer. matteo renzi says he will stake his political life on making change. titan at the table, bob -- it

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